GBP/USD consolidates in PREP!

As the opening of the price in the GBP/USD in the Asian session at the price level of 1.6509 it has drifted lower to 1.6403 as of this writing. The consolidation or sideways formation heading south is very convincing for the sellers in the market as it is co-related tot he US dollar recent upturn due to the reports which were positive, not to mention Fed Chairman Ben Bernanke's remarks that the US is at the verge of an economic recovery plus the positive figures reported by the National Association of Realtors on housing resales which was also the highest levels in 10 years.

These reports were very timely at the time the US Dollar index was dropping at its lowest levels of 77.80 shy of the 77.33 registered on the 1st week of August 2009. However, in spite of these good figures and that this 3rd quarter should have been the catalyst for the US dollar to make its cyclical upturn from the first 2 quarters of the down movement it is not enough as our research team is not convinced of the very timely report and statement made by the chairman. As a matter of policy, the US government has to perk up the dollar at those times when it is needed the most. However, these conditions of over spending, a widening budget deficit, a huge national debt of 8% to 13% of the Gross Domestic product can only mean that the US economy is still trying to recover. But for just one quarter would not cut it!

As the remarks alone by Warren Buffet made just recently in the New York Times last week was clear that the US Dollar will eventually weaken as the government's over spending is out of control as he mentioned in his comments.

On a technical note, the right shoulder formation on the GBP/USD is taking shape that is why the corrective move as we mentioned may take some time to finish on a day to day basis. However, in the longer perspective the Elliot wave formation on the GBP/USD and the EUR/USD is quite extra-ordinary as it is still intact in spite of the price going lower. But take a clear note that the percentage levels of strength and weakness has already adjusted. As the prices on the Pound or Cable as interbank traders call it is resting just on top of the 38.2% Fibonacci retracement levels.

We would not be surprise if and when the prices may just suddenly perk up during times when it would not be expected. As Gold has also made its correction levels from the high of USD 956.62 to the current low of USD 946.62 as of this writing. The market is not only choppy but the wider swings are quite active as volatility index has increased. When this happens it is obvious that we will see some wilder swings which most short term traders do not want to be in.

For the time being, take a careful watch as prices may show some rapid actions as we are just getting started for the week close to the end of the month. Remember what we have mentioned before that actions take rapid pace before and just right after the end of each month as traders start shifting their positions and adjust their turnover dealings and portfolio investments.

Good Luck and Happy Trading!